As we prepare to enter the first quarter of 2025, the commercial real estate (CRE) office sector continues its navigation through a period of stabilization, recovery, and cautious optimism. After years of disruption, the market seems to be finding its footing, driven by innovative strategies from industry leaders like KBS.

KBS’ focus on improved tenant experiences, well-amenitized properties, and operational excellence, is a decades-long strategy, one that shores up occupancy rates — but is reflective of broader industry shifts. Here we explore the dynamics and strategic priorities shaping the office sector, examining economic footing, market performance, and emerging trends.

Current Economic and Market Conditions

The macroeconomic environment remains a key influence on CRE office market trends. While inflation has softened following monetary policy interventions from the Federal Reserve, uncertainties persist. According to Deloitte’s 2025 CRE Outlook, the Fed’s cautious approach to adjusting interest rates is stabilizing borrowing costs, although they remain elevated compared to pre-pandemic levels. Amid potential recessionary concerns, this predictability has provided some relief to CRE stakeholders.

Investor confidence is returning in select markets, According to a new report from Colliers, office sales surged to $5 billion, marking a 28% jump from September 2024 and a solid 18% increase year-over-year. Colliers found that sales of office properties in central business districts (CBDs) led the way in transaction activity, with a 55% rise in activity compared to October 2023, as urban offices continue to attract investor interest. The $443 million sale of 701 Brickell in Miami, a 678,000-square-foot office tower, to a joint venture between Elliott Management and Morning Calm Management, was one of the largest sales last month.

Resilient sectors like technology and professional services are bolstering Class A office properties in key urban markets. Gateway cities such as New York and San Francisco continue to see stronger leasing activity, with New York experiencing leasing volumes that rival pre-pandemic levels due to high demand for premium spaces.

The stabilization of the office market is highlighted by a widening performance gap between asset classes. Occupancy rates illustrate the sector’s divergence, with Class A properties significantly outperforming their Class B and C counterparts.

“The recovery of the U.S. office market has become incredibly complex,” KBS’ Western Regional President, Giovanni Cordoves, recently told Commercial Property Executive. “Performance varies greatly depending on the region, submarket, city and office building class. For the most part, Class-A buildings continue to lease well and experience higher office occupancy than their lesser counterparts, likely due to a consistent trend among tenants seeking high-quality, well-located and well-amenitized buildings.”

Class A buildings with desirable locations, advanced systems, and modern amenities remain attractive, while older properties face challenges. This “flight to quality” trend emphasizes the need for wellness-focused, flexible, and amenity-rich workspaces. Some landlords of Class B and C spaces are even pursuing adaptive reuse or major renovations to remain competitive.

Amenitization is Shaping the Office Sector

Tenants are prioritizing office spaces that offer more than just functionality. Quality is key, and  exceptional amenities are top of a list of things that drive tenant perceived value; it’s a list that also includes energy-efficient designs, and certifications like LEED or WELL. Properties that meet these criteria benefit from increased demand and tenant retention.

KBS’ Accenture Tower in Chicago is an ideal example of implementation of amenities. This LEED Gold-certified, Class A property has earned The Outstanding Building of the Year (TOBY) Award Internationally by the Building Owner and Managers Association (BOMA). The mixed-use property now has multiple amenities that provide tenants with everything from transportation, restaurants, fitness areas and an indoor/outdoor tenant lounge.

KBS Prioritizing Tenants and Technology in 2025

  • Tenant Retention and Satisfaction: By leveraging data analytics, KBS is enhancing tenant experiences through open communication and tailored solutions. In an effort to minimize vacancy and increase tenant loyalty in a competitive market.

 

As part of its tenant engagement approach, KBS consistently conducts tenant satisfaction and feedback surveys to better understand each tenant’s unique needs, address issues, and determine future improvements. KBS’ dedicated focus on engagement allows it to rapidly respond to tenants’ needs and has been a key driver behind strong tenant satisfaction.

Recently, some 31 KBS properties were awarded the Tenant Satisfaction Kingsley Excellence Award. This award recognizes properties that outperform the Kingsley Index industry benchmark for tenant satisfaction. To name a few, here are the Top Five highest performing properties in overall satisfaction: Ten Almaden; 3811 Turtle Creek; Main & Gervais; 3003 Washington Blvd.; and The Almaden.

  • Advancing Sustainability and Technology: KBS’ adoption of energy-efficient systems, renewable energy sources, and smart HVAC technologies is reducing operating costs and enhancing property values. These initiatives align with ESG goals and growing tenant demand for sustainable, technologically advanced spaces.

 

Conclusion

The office sector appears to be at an inflection point, gradually stabilizing, with signs of recovery evident in key markets and asset classes. Despite lingering economic uncertainties, the demand for high-quality, well-amenitized spaces are reshaping the industry.

KBS’ focus on tenant satisfaction, sustainability, and innovation underscores its commitment to navigating current challenges and positioning itself for long-term success. This pivotal moment for the office market highlights the importance of adaptation, resilience, and forward-thinking strategies, as firms redefine success in an evolving CRE landscape.

Learn more by visiting KBS.com/Insights.